DOT Approves Northwest-KLM 'Open Skies' Merger

DOT Approves Northwest-KLM 'Open Skies' Merger

KIM I. MILLS

Jan. 11, 1993

WASHINGTON (AP) _ The Department of Transportation agreed today to allow Northwest Airlines and KLM Royal Dutch Airlines to merge their services and operate as if they are a single carrier.

The department also granted antitrust immunity to the carriers. The Transportation Department had tentatively approved the plan last Nov. 16.

Today's action was made possible by an ''open skies'' accord reached in September between the United States and the Netherlands. Under the pact, the carriers of both countries have unlimited access to the others' international market. Thus, airlines of the two countries may fly to any city in either country without restriction.

''This agreement is an illustration of the benefits of open skies,'' Transportation Secretary Andrew H. Card Jr. said in a statement. ''We hope it will provide an impetus for open skies accords with other countries, moving us further in the direction of a truly global aviation environment.''

KLM owns 49 percent of Northwest, although it only holds 20 percent of the carrier's voting stock. The deal approved today was set up to satisfy U.S. laws barring foreign ownership of airlines. The two airlines will have to resubmit the agreement for review by the Transportation Department in five years.

Approval of the deal comes just weeks after American Airlines' parent company received a one-third stake in Canadian Airlines International in exchange for investing $195 million in the struggling carrier. Similar plans by British Airways and USAir fell apart last month, although the British carrier has said it might try again.

Like the rest of the airline industry, Northwest has been struggling amid fare wars and recession in the United States. But Northwest has been particularly hurt by the economic slowdown in Japan, its key foreign destination.

The co-chairman of Northwest Airlines gave $100,000 to the Republican Party last year, at a time when the Bush administration was moving toward approval of two favorable rulings that helped the ailing airline.

Gary L. Wilson wrote checks for $80,000 and $20,000 to separate GOP accounts on Aug. 18, according to Federal Election Commission records.

Weeks later, the administration approved the open-skies agreement with the Netherlands, the first such deal with any European country.

Two months later, the Transportation Department gave preliminary approval to the antitrust immunity Northwest and KLM needed to merge their services.

The presidents of the two companies - John Dasburg of Northwest and Pieter Bouw of KLM - issued a joint statement hailing ''the vision and commitment by the U.S. and Dutch governments.''

''Now that antitrust immunity has been approved, Northwest and KLM will move to link route systems and operations to create a 'seamless' flight experience for travelers and shippers around the globe,'' they said.

Northwest has been in financial trouble since 1989 due to a $3.65 billion leveraged buyout by its parent company, NWA Inc. NWA Inc. lost $19.7 million in the third quarter of 1992.

In early December, Northwest announced it was borrowing $250 million from banks, suppliers and other investors to fund operations during the typically slow winter travel season. Lenders also agreed to allow the strapped carrier to delay or cancel $6.2 billion in plane orders.